Govt extends tax concessions on STPI by a year

Picked from The Economic Times.

In a much-awaited relief for the IT industry, software companies can now enjoy benefits of the Software Technology Parks of India (STPI) scheme for another year. The government has extended the tax concessions under Section 10A of the Income Tax Act to March 2010. The scheme was to expire in March 2009 under the sunset clause provided in the scheme. On an average, IT companies would get a revenue benefit of at least 5-7% — on the effective tax rate — because of this extension. Normally, companies have about 50% business located in technology parks, export revenue from which is fully tax-exempt. In a letter to the prime minister, Union IT & communications minister A Raja said: “I thank you on behalf of my ministry and the entire IT industry for your far-sighted decision to extend the STPI scheme. This will certainly help the IT industry, especially the small and medium enterprises which have been under tremendous pressure due to the rupee appreciation, wage inflation and several other factors. This would give us the encouragement to build up the momentum to meet our commitment of achieving IT exports of over $60 billion by 2010.” The relief has come after intense lobbying from the communications ministry and the industry. Finance minister P Chidambaram made the announcement in Parliament on Tuesday.
The move will benefit smaller companies more because SEZs have remained off-limits for them. “This is a good move and benefits small- and medium-sized companies who were finding it difficult to move into SEZs due to space crunch and high rentals. Most of the larger companies are already pursuing their SEZ plans aggressively. This move will enable them to enjoy the tax benefits further,” said Infosys Technologies CFO V Balakrishnan However, the biggest of all bonanzas lies in the fact that the small firms will get about two years to chalk out their future. For instance, those like KTwo Technology, an IT services start-up with revenue of $1.58 million in the first year of its operation, stands to benefit immensely. As its CEO Ananth Koppar put it: “At least, the small companies will get a breather for one more year.”